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Talking Points on the Separate Liability Funding Solution

The Separate Liability Funding Solution does not promote the underfunding of pension plans

  • Employers will be obligated to make greater contributions for the 2008 and 2009 plan years than they did for prior plan years
  • No liabilities are hidden or eliminated
  • PPA rules are unaffected
  • FAS 87 statements will fully reflect the value of the separate liabilities and the longer time period that employers will have to fund them

Most sponsors of pension plans are solid, responsible employers that can afford to fund their plans under normal conditions

  • Extraordinary, once-every-other-generation, market conditions should not be permitted to wipe out pensions and seriously damage the financial health of employers
  • Small service sector employers – such as NEA affiliates – who sponsor defined benefit pension plans will be severely damaged financially if they are not provided a longer period to fund the extraordinary, short-term investment losses
  • Most employers facing this funding crises are stable and sufficiently credit worthy to fund the extraordinary, short-term investment losses over time

The Separate Liability Funding Solution is simple, understandable, and fair

  • Funding the short term investment losses over a fixed period with a fixed interest rate is just like a normal mortgage obligation
  • A 30-year amortization period is the standard imposed by ERISA and is used in the public sector under the Government Accounting Standards Board (GASB) rules
  • By saving sponsors from having to cover the extraordinary, short-term investment losses with an immediate huge cash contribution, employers are spared being put in impossible financial positions
  • By requiring the funding of the extraordinary, short-term investment losses over time, the Separate Liability Funding Solution permits 
    • pension promises to employees to continue to be met, and
    • the Pension Benefit Guaranty Corporation to avoid a host of new liabilities
  • By keeping plan sponsors on the hook for the value of the extraordinary, short-term investment losses, the Separate Liability Funding Solution ensures that stakeholders in those sponsors receive a full and accurate picture of the sponsor’s financial health